ESG 2024 Comparisons

In the last few years, European lawmakers have continued to improve the European Union ESG frameworks by adopting important ESG legal acts that can be considered a roadmap for all stakeholders on ESG issues.

The Corporate Sustainable Reporting Directive (CSRD)

One of the most anticipated legal regimes, the Corporate Sustainable Reporting Directive (CSRD), which replaced the Non-Financial Reporting Directive, was adopted at the end of 2022 and came into effect in January 2023. Mandatory reporting obligations cover approximately 50,000 companies and are applicable to both EU and non-EU companies that meet the target number of employees and annual turnover. The first reporting period will start in 2025, with information for the 2024 financial year.

The European Sustainability Reporting Standards (ESRS)

European Sustainability Reporting Standards (ESRS) were also adopted during 2023 as the unified instrument for CSRD reporting obligations. Unlike the CSRD, which needs transposition into national legislation (which has not yet occurred in Portugal), the ESRS is a regulation that can be applied directly to the member states. Consequently, it is expected that companies will start reporting according to the calendar stated by the CSRD, despite the omission of the national legal transposition act. The reporting standard has set a list of specific information that companies must disclose regarding their material impacts, risks and opportunities in environmental, social and governance matters. The ESRS consists of two cross-cutting matters and ten thematic standards that cover ESG issues. The adoption of the European Commission’s standards for sector-specific companies and for non-EU companies has been delayed until 2026.

The Corporate Sustainability Due Diligence Directive (CSDDD)

Discussions on the Corporate Sustainability Due Diligence Directive (CSDDD) started in 2022 and the directive finally came into force in July 2024. The CSDDD represents a major step as it imposes a due diligence obligation on companies, which are obliged to identify, mitigate and report on the impact of their own operations and supply chain on human rights and the environment. 

The Regulation on European Green Bonds

On the financial side, the Regulation on European Green Bonds, adopted in 2023, aims to address the challenge of increasing financial flows towards green technologies and energy-efficiency projects. This regulation creates an effective financial instrument for investors, thereby contributing to the fight against climate change and having a positive impact on society and the environment.

The Proposal of Regulation

The new Proposal of Regulation on the transparency and integrity of ESG ratings activities was proposed in 2023. It recognises a general legal regulatory approach to strengthen the principles of the reliability, transparency and credibility of an ESG rating by setting specific rules of organisation and conduct for ESG rating providers. The proposal was passed in the European parliament in the first reading in 2024 and is now awaiting approval by the European Council.

The Regulation on Deforestation-free Products (EUDR) and the Nature Restoration Law

Portugal, as a member of the EU, implements EU ESG legislation. A few examples of the development of EU legal acts in parts of the environment can be highlighted, such as the Regulation on Deforestation-free products (EUDR) and the Nature Restoration Law which were adopted recently. Both legal regimes aim to protect nature and biodiversity.

Decree-Law No 11/2023

At the national level, the main environmental legislation approved in 2023 was related to administrative simplification of licensing in the fields of the environment, green public procurement, water resources use and waste management, through the approval of Decree-Law No 11/2023, which aims to simplify administrative procedures for companies, with a special focus on the environmental area.

The National Strategy for Public Procurement

The National Strategy for Public Procurement has been updated in line with EU policy in this area and in compliance with the Climate Framework Law (Law No 98/2021), which provides for preference for the contracting of services that comply with the principles of the EU Taxonomy on environmentally sustainable activities.

Decree-Law No 69/2023

Decree-Law No 69/2023 established the legal framework for the quality of water intended for human consumption, in line with European directives.

Management of Waste

Finally, comprehensive amendments to waste management legislation were approved (including the legal regime for the landfilling of waste and the regime for the management of specific waste streams subject to the principle of extended producer responsibility), as well as the Strategic Plan for Urban Waste 2030 and the Strategic Plan for Non-Urban Waste and the National Waste Management Plan 2030.

The year 2023 was a transformative one for the social aspect of ESG in Portugal. Enhanced regulatory frameworks and significant case law developments are helping to foster a more equitable and inclusive corporate environment. Companies in Portugal are now more accountable for their social impact, working conditions, and community engagement practices, reflecting a broader European trend towards comprehensive ESG compliance.

Regulatory Framework

In regard to regulations and legislation, Portugal has continued to advance gender equality and regulations that are non-discriminatory. This includes measures to ensure equal pay, reinforce anti-discrimination laws, and promote female representation in corporate leadership roles. The existing regulatory framework has seen enhanced monitoring and enforcement mechanisms this year.

In turn, Portuguese companies have been making an effort to comply with inclusion regulations, namely concerning disabled people.

In matters of harassment at work, employers have been putting in place codes of conduct and regulations on the prohibition and prevention of such behaviours, which encompass not only victims, but also witnesses and whistle-blowers.

Measures taken for parenthood protection and work-life balance were mostly in view of employees’ mental health and engagement, with the development and enforcement of more regulations on absences from work, flexible schedules, and social benefits, among others.

Finally, the Portuguese government has put forward new regulations aimed at improving working conditions. This includes stronger enforcement of labour rights, increased minimum wages, and more stringent rules on temporary and precarious employment.

Case Law Developments

When it comes to case law, several notable cases on labour rights have been brought before the Portuguese courts in relation to unfair labour practices. These cases highlight issues such as unjustified dismissals, workplace harassment, and violations of contract terms. The outcomes of these cases are shaping employer practices and reinforcing the importance of adhering to fair labour standards.

Portuguese courts have also seen an increase in cases related to employee data privacy, due to the enforcement of the General Data Protection Regulation (GDPR) across the EU. Companies are being held accountable for misuse or mishandling of personal data, emphasising the importance of robust data protection measures in the workplace.

The types of cases are mostly related to:

• discrimination, with significant cases related to workplace discrimination based on gender, race and sexual orientation – the rulings in these cases are helping to build a more inclusive and equitable work environment in Portugal; and
• worker safety, with occupational health and safety violations being most prominent – companies found negligent in ensuring a safe working environment have faced substantial penalties, underlining the critical importance of health and safety protocols.

The general feeling regarding the relevance of corporate governance, as the “G” in ESG, has evolved significantly in the past year, following an overall trend that had already been occurring in previous years.

The essential pillars of Portuguese legislation related to corporate governance, the Commercial Companies Code and the Securities Code, have not undergone significant changes in this matter, but two events partly explain this trend in Portugal.

Firstly, the approval in 2023 of a new version of the Corporate Governance Code (soft law) by the Portuguese Institute of Corporate Governance, which for the first time prominently and significantly addressed ESG matters.

Secondly, the fact that the application of the CSRD Directive (Corporate Sustainability Reporting Directive) is approaching. Despite the delay in transposition, which is expected to be completed by the end of 2024, many of the companies that will be impacted by it are already preparing for its implementation.

Currently, in Portugal, there is no single regulatory or supervisory entity that globally assumes responsibility for the ESG transition. In global terms for all economic activity, it is only the Portuguese government that assumes responsibility through policy measures that promote the ESG transition. Specifically, regarding climate, it has since 2021 enacted the Climate Framework Law, which reflects deep concern about the transition and primarily targets public entities, but private companies are also in its scope.

Regulatory and supervisory bodies oversee sets of entities based on their sectors or nature and have ESG impacts within their respective areas. Some specific supervisory bodies stand out.

The Portuguese Securities Market Commission

The Portuguese Securities Market Commission (Comissão do Mercado de Valores Mobiliários – CMVM) supervises entities with securities admitted to trading on a regulated market. These are mostly companies with extended ESG reporting obligations, whose compliance is subject to oversight and sanction by the regulatory entity. The CMVM has dedicated significant attention to ESG matters and even published, in 2024, a “Sustainability Guide for Issuers, Asset Managers, and Financial Intermediaries” under its supervision.

The Bank of Portugal

The Bank of Portugal (BP), responsible for supervising credit institutions, also has a supervisory role with ESG relevance, shared with the European Central Bank, depending on the characteristics of the credit institutions. Credit institutions have a set of specific ESG disclosure obligations resulting from the Taxonomy Regulation and Pillar III obligations approved by the Commission Implementing Regulation (EU) 2022/2453 of 30 November 2022. These obligations are very broad and are subject to supervision by the regulatory authority.

Other Regulators

There are other regulators of significant activities in the transition process that impact the covered companies, such as the Insurance and Pension Funds Supervisory Authority (Autoridade de Supervisão de Seguros e Fundos de Pensões – ASF) and the National Tourism Authority (Turismo de Portugal).

The future transposition of the CSDDD will bring new developments in this matter, as countries will be required to designate an oversight authority with specific competencies not only in the supervision of due diligence matters but also in climate transition plans.

Portugal has a strong industrial ecosystem mainly composed of small and medium-sized companies, which act as first or second-tier suppliers to large companies located in other countries (EU and non-EU). The main sectors of activity consist of garment and footwear (textile sector), food and beverages (agricultural and food sector), metalworking, the automotive industry and mobility (manufacturing sector), with other fast-growing sectors such as the aerospace industry, ICT and corporate shared services, such as data centres or centralised operational hubs for back-office activities. Although many ESG laws and regulations will not be directly applicable to the Portuguese industrial sector due to the small size of the companies involved (the application thresholds of those laws and regulations will not be met, as is the case with the recently adopted CSDDD, which only affects a reduced number of Portuguese companies), the fact that most of the market addressed by Portuguese companies is composed of large companies which are subject to those legal requirements will undoubtedly have an impact. ESG concerns, although not yet fully widespread in the industrial ecosystem, are becoming more and more inescapable due to the pressure originating from the market. Therefore, it is expected that all sectors and industries with an export component will have to adjust to ESG requirements and reshape their business practices or otherwise they will be at a competitive disadvantage and may even lose some of their market share. Finally, the attractiveness of foreign investment and access to traditional financing will increasingly be reliant on ESG criteria, which means that those sectors targeted by investment funds (eg, the energy sector, where the role of renewable energies is relevant) or with business models highly dependent on financing (eg, construction and the real estate sector) will have to adapt their operations and strategies to be ESG compliant.

Extraordinary events and the increased number of natural disasters of the last few years have been relevant in the ESG-related process.

The invasion of Ukraine by Russia and the subsequent disruption of the global energy market have caused the EU to adopt several measures to cope with this new situation. Among these, it has launched a programme under the name “REPowerEU” to promote the phasing out of Russian fossil fuel imports and to overcome EU dependency on them.

Under this programme, several reforms have been made in Portugal, such as:

• the implementation of one-stop shops for energy efficiency and renewables;
• the development of a regulatory framework for renewable hydrogen management; and
• the creation of the National Energy Poverty Observatory.

Amendments were also made to energy efficiency in residential, service and public buildings; on energy transition to support the development of green industry; and on decarbonisation of public transport.

In turn, the climate policy remains among the priorities of the EU and other countries worldwide, as evidenced by the policy statements of various governments at 2023’s UN Climate Change Conference (COP28). These statements, aimed at combating global climate change, can be found in the domestic public policies of central banks, the fiscal system, and the energy-resilience system.

In Portugal, it is worth noting the adoption of the Climate Framework Law, which came into force in January 2022. With widespread scope (covering topics such as green finance, companies’ governance, health, security and foreign policy, energy transition, adaptation to climate change, a just transition, sustainable mobility and transport, agriculture and the food chain, international co-operation, etc) it set ambitious targets and obligations for accomplishing climate neutrality even before the 2050 goal set by the EU. Finally, brief mention needs to be made about the creation in 2021 of a national mechanism of just transition in order to guarantee the maintenance of the wages of workers who lost their jobs due to the process of the closing, in 2021, of the Central do Pego, which used to produce electricity from coal. It will continue to run until these workers can find a new job or, at least, until the end of 2024.

The main developments expected in terms of corporate governance are the continued implementation of the new version of the Corporate Governance Code by the Portuguese Institute of Corporate Governance (Instituto Português de Corporate Governance – IPCG) and the adaptation to the requirements of the CSRD Directive, both of which will impact the systems and processes of various companies.

The IPCG dignified ESG with a new first chapter for the Corporate Governance Code, dedicated to stakeholders and sustainability. This move represents a shift in corporate governance towards giving importance to sustainability matters, in line with the 2023 G20/OECD Principles of Corporate Governance. The principles approved in Portugal include the duty to contribute to the UN Sustainable Development Goals, environmental and social impact due diligence, and the need to consider stakeholders in the decision-making process. The recommendations are essentially focused on disclosure.

The CSRD Directive is focused on the fulfilment of ESG reporting obligations, but its construction and implementation strategy was designed with the objective of pushing companies towards the transition (and not only disclosure), and this force is being felt. Simply complying with reporting obligations is forcing many companies to reorganise themselves and change governance processes to meet new requirements. The inevitable comparison and pressure from stakeholders is generating a set of other corporate governance changes at three levels: (i) supporting environmental or social initiatives; (ii) structuring the bodies, committees and general competencies of the company; and (iii) addressing very specific governance matters related to business conduct.

The value chain implications of the CSRD Directive, coupled with a broader general diffusion of corporate governance concerns and ESG in particular, have led to a clear trend for smaller companies, which are not directly obliged by any legal instrument, to begin their sustainability journey too.

The basic governance framework of both listed and unlisted companies results from the Commercial Companies Code (Código das Sociedades Comerciais).

Listed companies, in addition to special relevant rules in terms of corporate governance stemming from the Securities Code (Código dos Valores Mobiliários) and regulations from the CMVM, are subject to a specific obligation to disclose detailed information about their corporate governance regime and to report in relation to a corporate governance code chosen on a “comply or explain” basis. This has generally been done by referring to the IPCG Corporate Governance Code.

As for specific ESG information obligations, the situation is different. The distinction to be made is not just between listed and unlisted companies, but between those that are large enterprises, of public interest, with more than 500 employees, and the others. Listed companies are by definition companies of public interest. For these companies, there are already specific ESG information disclosure obligations under the Commercial Companies Code.

With the CSRD Directive fully in force, the relevant distinction will no longer be between public interest or listed companies and the others. Instead, it will become a more complex system that will essentially cover all companies that qualify as “large” (see 5.1 Key Requirements).

The general context of the development of ESG, with specific environmental norms, significant developments in employee rights, and specific governance duties, such as those related to bribery and corruption or whistle-blowing, as well as reporting responsibilities, has created various direct obligations for companies.

In the case of climate, a specific governance obligation has been introduced by the Climate Framework Law. This requires companies to incorporate climate change considerations into their corporate governance and include climate risk analysis in their decision-making processes.

The fulfilment of all these obligations is the responsibility of the directors, which stems from the fact that they are bound by duties of care, availability, technical competence, and knowledge of the company’s activities, and they must act with the diligence of a prudent and orderly manager.

The impact of general ESG factors on directors’ liability, when these factors do not yet constitute direct legal obligations, will only exist to the extent that it can be concluded that the directors’ actions did not respect the criteria of business rationality (business judgement rule). This reasoning is always complex and includes elements of subjectivity. The specific circumstances of the company’s activities and the particular case must also be integrated with the interpretation of who are the relevant stakeholders in terms of the actions and responsibilities of the directors.

Portugal does not have specific legal business forms for social enterprises and/or non-profit companies. Social entrepreneurs wishing to incorporate social enterprises or non-profit corporate structures, generally opt to incorporate a regular commercial company, with carefully drafted articles of association that reflect the social venture of the company. These companies frequently have non-profit organisations as founders. 

Shareholders are responsible for assessing the administration, proceeding with dismissals, and claiming liabilities whenever they deem it necessary. Presently, there are specific obligations within the ESG scope, and the impact of these concerns on all companies is unequivocal. The directors’ ESG choices, like all other decisions, are subject to shareholder scrutiny.

Particularly relevant in this assessment is the understanding of Portuguese law regarding stakeholders, in terms of the duties of loyalty and the interests that directors must uphold. The duties of loyalty exist for the interests of the company itself. Shareholders and other stakeholders have different levels of relevance in this construction. Those duties of loyalty must reflect the long-term interests of shareholders and, with distinct relevance, also consider the interests of other stakeholders who are relevant to the sustainability of the company, such as workers, clients and creditors.

It is therefore clear that under Portuguese law the company itself and its shareholders come first, but the complexity of the reasoning comes from the fact that it is unquestionable that the consideration of the interests of other stakeholders is also in the interest of the company itself and its shareholders.

Portuguese supervisors have been making a concerted effort to promote sustainability with local asset managers, investors and stakeholders. This has been achieved primarily through the provision of information to the market, participation in public events, and the organisation of surveys to assess how market operators are incorporating sustainability into their activities.

New IT tools that will simplify the ESG analysis carried out for clients and prospective clients, along with the increased regulatory attention devoted to ESG, should continue to propel the integration of sustainability within the local market.

Currently, the main guidelines for companies seeking and/or providing finance stem from:

• the EU Green Bonds Regulation (even if on a prospective basis, considering that this act will only come into effect on 21 December 2024);
• internationally recognised standards such as those from the International Capital Market Association; or
• sustainable finance frameworks created by each institution.

These frameworks aim to disclose to the market how they incorporate sustainability demands into their financing activities. 

There are several local institutions and operators making green financing available to borrowers. The offer of green financing is expanding, and this trend is expected to continue in the foreseeable future due to the need for lenders to report their own alignment with the EU Taxonomy.

Regarding green banking loans, several of the major Portuguese banks already offer green options to borrowers under their sustainable finance frameworks. As expected, the financing granted under this option offers special conditions to borrowers; however, it imposes additional constraints on their activities and use of proceeds.

In terms of sustainability bonds, sustainability-linked bonds, or green bonds, Portuguese entities that had a particular focus on the energy sector started successfully resorting to these instruments to finance their activities several years ago.

Although the shift of focus towards green financing is becoming clearer each day, it is still possible for companies operating with stranded assets or other non-bankable assets under the ESG landscape to obtain financing for their activities.

Nevertheless, as financing increasingly favours more desirable sectors under the ESG landscape, concerns regarding old economy borrowers and issuers will likely rise on the list of issues to address in the transition to a greener economy.

In any case, in Portugal, it is noticeable that even companies with a significant business in stranded assets are making an effort to adapt to ESG principles. For example, they are investing in more suitable projects, diversifying their portfolios, and making investments to reduce their carbon footprint.

With the ever-increasing presence of sustainable finance and ESG at the top of the agenda for public supervisors, lenders, borrowers, investors and stakeholders, the market is now being urged to move from the initial formal approach to the inclusion of ESG in their activities – perceived more as a burden than an opportunity – to truly embody and adopt ESG principles.

This change in attitude will require a broader and better comprehension of the status of ESG adoption by local companies and their plans. In this regard, it is already noticeable that local financial institutions, acting in a co-ordinated manner, are taking the first steps to collecting and sharing ESG data from their clients and to facilitating easier access to green financing.

For now, the local market is adopting a positive outlook on ESG, and no significant anti-ESG movement has been perceived.

Finally, after the initial push for the adoption of and compliance with the ESG framework by financial institutions, according to public statements from financial sector supervisors, it is expected that regulatory awareness will start focusing on the materiality of public ESG statements, classification of products, and distribution of green products.

In recent years, there has been a notable global trend of soft-law principles evolving into hard law. Portugal reflects this broader global trend, influenced by its commitment to international and European standards, and the evolving needs of governance and regulatory frameworks. This tendency may be observed in several areas, including environmental law, corporate governance, human rights, and digital regulations. The United Nations Guiding Principles on Business and Human Rights and the OECD Guidelines for Multinational Enterprises on Responsible Business Conduct, which have informed recent EU legislation such as the CSDDD, are good examples.

Due diligence requirements for companies operating in Portugal are indeed increasing, especially for those forming part of the value chain of large companies. This is a trend emerging from EU legislation, such as the recently adopted CSDDD, as well as from market pressures and consumer expectations. Companies are expected to adopt more comprehensive due diligence practices to ensure compliance, assure the traceability of products supplied to the market, manage risks, and meet the demands of various stakeholders. The recently adopted National Action Plan on Business and Human Rights, promoting responsible business practices and calling for enhanced due diligence measures to prevent human rights abuses, is a good example.

A noticeable trend that is being observed is that due diligence requirements are reshaping how companies engage with their supply chain partners, with a visible shift towards more responsible and transparent supplier relationships, despite the fact that 99% of Portuguese companies are small and medium-sized enterprises (SMEs), which makes it more difficult to implement effective due diligence requirements in supply chains. Market-driven pressure and increasing awareness of the importance of protecting human rights, adopting fair labour practices, and abiding by ethical sourcing of materials, just to mention a few, are becoming increasingly widespread as criteria for selecting suppliers, emphasising compliance with ESG standards. Suppliers are increasingly required to demonstrate that they meet these criteria through certifications and documented practices.

ESG considerations are playing an increasingly central role in M&A activities in Portugal. From due diligence and valuation to post-merger integration and regulatory compliance, ESG factors are reshaping how deals are structured and executed. While there are still challenges to overcome, such as reliable and comparable ESG metrics and data availability, the trend is clear: companies and investors are placing growing importance on sustainable and responsible business practices in their M&A strategies.

Due Diligence

ESG-related due diligence is now a standard part of the M&A legal due diligence process, which includes examining environmental practices, social policies and governance structures to identify any potential red flags or areas of improvement as part of their overall assessment of the target company. Level of compliance with environmental laws, labour rights and workplace safety, and meeting anti-corruption legal requirements, as well as potential liabilities related to past non-compliance, can impact the valuation and terms of the deal, including determining a go/no-go decision.

Contractual Provisions

M&A agreements increasingly include specific warranties and indemnities related to ESG issues, and in some deals, contingent payments or earn-out clauses are tied to achieving specific ESG targets and milestones post-acquisition.

Currently, specific sustainability reporting obligations only apply to companies that simultaneously:

• are of public interest, such as certain financial institutions and companies with securities admitted to trading on a regulated market;
• are large, by meeting at least two of the following three criteria –
1. turnover above EUR40 million;
2. balance sheet total exceeding EUR20 million; and
3. more than 250 employees; and
• have more than 500 employees.

With the transposition of the CSRD Directive, these criteria will be progressively altered so that the obligation will fall on all large companies and on small and medium-sized companies (that are not micro-entities) if they have securities admitted to trading on a regulated market.

There is also a general legal obligation applicable to all companies requiring non-financial performance references, including information on environmental issues and issues related to employees, to be included in the annual reports to the extent necessary to understand the evolution of the business, its performance, or  the position of the company. Additionally, there are some specific general information obligations in terms of climate resulting from the Climate Framework Law.

Currently, in the Portuguese jurisdiction, there is no cross-cutting obligation to publish transition plans or to commit to targets. Even the Climate Framework Law refers to the setting of a “carbon budget” as being optional.

With the transposition of European ESG legislation, this situation will evolve. Under the CSRD Directive it is not mandatory to have a transition plan, but it will be necessary to declare that one does not exist or if it does, to provide information about its content. Companies that fall under the scope of the CSDDD, which will only be very large companies, will be required to adopt and implement a transition plan to mitigate climate change.

During the past few years, the EU has initiated a revision of consumer law, as announced in the New Consumer Agenda and the Circular Economy Action Plan. This has resulted in the adoption of the Empowering Consumers for Green Transition Directive (ECGT Directive), the Ecodesign Regulation, the Right to Repair Directive and the issuing of the Proposal of Green Claims Directive, which together will cover the issues of sustainable claims and combat misleading environmental claims known as “greenwashing”.

The ECGT Directive

The ECGT Directive amends the Unfair Commercial Practice Directive (2005/29/EC) and Consumer Rights Directive (2011/83/EU) and will be implemented in Portuguese legal regimes Decree-Law 57/2008 and Law 47/2014 respectively within two years. Protection of consumers from unfair commercial practices, non-transparent sustainability labels, and untruthful advertising, and the mandatory indication of information on the durability and repairability of a product will ensure consumers are better informed and help them decide in favour of truly sustainable products.

The Ecodesign Regulation

The Ecodesign Regulation aims to ensure that the products or services placed on the EU market meet the requirements that cover the entire cycle of the products. The development of a digital product passport, providing information about a product from its origin, materials used, its environmental impact, and disposal recommendations, will be mandatory for all producers in the EU and outside the EU before placing a product on the EU market.

The EC’s Proposal of Green Claims Directive

The European Commission’s Proposal of Green Claims Directive is still under legislative procedure. The directive proposes to set a number of requirements for the substantiation of explicit environmental claims and environmental labels, ensuring their reliability, comparability and verification.

The main entities in Portugal responsible for monitoring corporate sustainability reporting are the CMVM for entities with securities admitted to trading and some funds, the BP or the European Central Bank for credit institutions, and the ASF for insurance and pension fund activities.

The entry into force of the national act that transposes the CSDDD will possibly lead to the designation of a new entity responsible for the global supervision of certain ESG matters covered by that directive, specifically the due diligence process and transition plans.

In Portugal, “sustainability marketing claims” involve a direct relationship with consumers, and therefore have different supervisory entities.

Unfair commercial practices are under the responsibility of the Directorate-General for Consumers (DGC), as well as the BP, the CMVM and the Insurance Institute of Portugal, which are considered competent administrative authorities for unfair commercial practices in the financial sectors. 

The failure to comply with reporting obligations firstly results in consequences within the general liability rules for companies and management. They are responsible for the damages caused as a result of the breach of a legal provision.

In addition to these general legal rules, there are specific consequences for regulated companies, which include the possibility of ancillary sanctions and fines. For example, in the case of listed companies, breach of information duties can be classified as a very serious offence with a fine ranging from EUR25,000 to EUR5 million.

Under the CSDDD, there is a specific sanction regime for some of the matters covered, which can reach up to 5% of the global turnover of these companies.

With regard to banks, despite the lack of a specific sanctioning regime for these situations, the general rule, provided for in the Portuguese general regime of credit institutions and financial companies, that sanctions violations of the mandatory precepts of the legislation (including EU legislation) governing the activity of credit institutions, financial companies, financial companies and mixed financial holding companies, may apply.

First-time offenders should be sanctioned with the minimum penalties.

Formally, the most relevant time milestone on the horizon of sustainability reporting is the year 2025, which is the reference for the reporting that will take place at the beginning of 2026. For the first time, all large companies will be covered by this obligation, significantly increasing the number of Portuguese companies. Considering that sustainability reporting often has a value chain perspective, this coverage will have much broader impact than just on the directly involved companies.

Some of the companies that will be covered during this phase have already begun their adaptation processes. The main challenges encountered relate to data access and the necessary adaptations of processes and governance models not only to meet reporting requirements, but also to align the company’s reality with more robust reporting content.

There is a general awareness that it will not be possible to transition instantly from almost non-existent ESG information to the sophisticated reporting required by the CSRD. However, companies that have started the process are motivated by the beginning of this journey.

The fact that the CSDDD is now also appearing on the horizon, with its different sets of obligations, is motivating some companies to have a combined approach to the ESG implications resulting from both regulations.

The Portuguese Constitution consecrates the right to intervene and participate in administrative procedures, and the full and effective protection of legally protected rights and interests are recognised, including the right to popular action and the right to promote the prevention, cessation and remediation of offences against public health, consumers’ rights, quality of life, the protection of the environment and cultural heritage protection.

The Climate Framework Law (Law No 98/2021) has been in force since 1 February 2022, recognising the right of all citizens to climate balance, which consists of the right to demand that public and private entities comply with their duties and obligations regarding climate change, including the right to request the immediate cessation of any activity threatening or causing damage to climate balance.

The effectiveness of the law will greatly depend on the use that citizens and collective organisations (associations, foundations and even private companies) make of it, as well as the position of the national courts asked to apply the relevant law.

The environmental non-government organisations (ENGOs) in Portugal have benefited since 1998 from a special legal status and, among other rights, have the right to consult or be informed by administrative authorities on documents and administrative decisions affecting the environment. ENGOs are also recognised as having legitimacy to initiate legal actions related to acts performed by public or private entities and to constitute themselves as assistants in proceedings for crimes against the environment.

Recently, a group of environmental associations appealed to the Supreme Court of Justice in a lawsuit against the Portuguese State for non-compliance with the Climate Framework Law, after the Civil Court of Lisbon rejected the initial petition, delivered in November 2023. On 19 September 2024, the Supreme Court of Justice overturned the first instance decision and proposed that the associations concretise their claims. This is the first lawsuit against the Portuguese State targeting taking measures to protect from climate change.

In turn, the case of Duarte Agostinho and Others v Portugal and 32 Other States is a clear example of Portuguese activists’ actions. In 2020, six Portuguese youngsters filed a complaint with the European Court of Human Rights against 33 countries. The applicants’ main claim concerned human rights violations resulting from the failure to take sufficient measures to combat climate change, and to demand more ambitious measures to reduce greenhouse gas emissions and fulfil commitments under the Paris Agreement to combat rising global temperatures. The European Court of Human Rights, however, decided that the complaint was not to be upheld because the applicants had failed to exhaust the remedies offered by the Portuguese legal system.

The DGC is the competent national authority responsible for consumer protection and advertising supervision. The DGC has the competence to deal with misleading or false claims and has the power to impose fines on non-compliant companies. It has opened several administrative procedures against companies accused of misleading advertising of their products.

At the time of publication, no lawsuit had been filed by investors or a regulator in Portugal in relation to greenwashing. In 2022, a judgment was handed down by the Court of Appeal of Lisbon in a case against two companies engaged in the manufacture of cars and two companies engaged in the importation and sale of cars in Portugal filed by a civil society organisation for false and misleading environmental claims.

It is expected that there will be an increase in the number of cases dealing with greenwashing claims and it is possible that such lawsuits will represent the majority of ESG-related litigation in the near future.

In Portugal, the ESG framework is based mainly on EU legislation. It is therefore expected that the development of ESG-related proceedings in Portugal will follow the full implementation of EU legislation and its transposition into national law that is still to be fulfilled.

Major changes in European legislation directly related to corporate reporting suggest that the number of ESG-related claims will increase, especially as the deadline for transposition into national jurisdictions is reached and all the due information is disclosed by the companies.

The evolution of greenwashing legislation in Europe and the future adoption of the Green Claims Directive, establishing clear rules for all participants, will also influence the number of climate greenwashing cases.